YOUR LIVING COSTS ARE GUARANTEED TO RISE; CAN YOU HANDLE THE HIT TO YOUR WALLET?

**SHOPGIRL** · 12-28-2005, 12:17 PM

This is a worthwhile article to read. Suze touches on why our living costs are going up, and the importance of debt reduction.

YOUR LIVING COSTS ARE GUARANTEED TO RISE; CAN YOU HANDLE THE HIT TO YOUR WALLET?

The forecast for your cost of living is not good my friends. No matter where I look I see storm clouds and it makes me worry that we are heading for some tough times.

Just consider what's been brewing lately:

The devastation caused by Hurricane Katrina is going to affect every one of us. Much of U.S. oil refining and production is based in the Gulf area; with damages caused by the storm expected to slow down our domestic oil business, gas and oil prices are heading up. Expect gas prices to jump another 15 cents to 20 cents a gallon. Heating bills this winter are also going to be a huge hit for all of us, as both oil and natural gas prices are sharply higher than a year ago. And since natural gas is a big part of generating electricity, you can expect that charge to rise too. Bottom line: More pain at the pump and in your utility bills.
Home insurance premiums are bound to rise. I am not just talking about the cost for folks in the regions affected by Hurricane Katrina. Ultimately, the cost of this sort of devastation is borne by all of us in higher premiums or scaled-back coverage. Bottom line: There's a high probability the cost of protecting your home is going to increase.
Interest rates are on the rise. While long-term rates haven't budged too much over the past year, the interest rates on our credit cards, adjustable rate mortgages and Home Equity Lines of Credit are sharply higher. That's because those rates are tied to what Federal Reserve Chairman Alan Greenspan does with the Federal Funds rate. And over the past year he has increased that rate by two percentage points; that's made short-term rates jump just as much. And Greenspan has made it clear he expects to keep raising his Fed Funds rate in the near future. Bottom line: Credit is more expensive.
Your minimum credit card payment is rising. At the nudging of federal regulators, credit card companies are changing the formula they use to determine your required minimum monthly payment. In the past, the calculation was set at just 1.5 percent or 2 percent of your outstanding balance. But now the rate is changing to 4 percent. While it's good news in the sense that you will get your debt paid off faster (and thus pay less in total interest charges), it's painful because you need to shell out more each month. Bottom line: if you carry a credit card balance your monthly minimum required payment could double.
You can't expect Bankruptcy to bail you out. Beginning in October new bankruptcy rules will make it much harder to file for Chapter 7 bankruptcy. Many consumers who seek bankruptcy relief will be required to file Chapter 13, which entails repayment of at least some of the filer's debts. Bottom line: It's always best to try and work out your financial problems without turning to bankruptcy; but now even if you go the bankruptcy route it is going to cost you more.
Increasing Home Values have a cost. Yes, you may be sitting on more equity, but the local tax assessor is licking his chop; you are probably going to get hit with higher property taxes. Bottom line: Rising home values mean rising property tax bills.

Add that up and it amounts to a scary perfect storm that is battering consumers. Just consider this scenario: you have $9,000 of credit card debt at 15 percent, you run through 20 gallons of gas a week, and you are repaying a $25,000 HELOC. A year ago, your monthly costs for all three combined would be in the vicinity of about $511. Now you're looking at close to $778. That's because your minimum payment on the credit card bill probably jumped from $180 to $360, filling up on those 20 gallons a week has risen to about $50 from about $35 bucks, and your HELOC interest rate jumped two percent to 6.5 percent, which sent your payments from about $191 to $218. So you are looking at an extra $267 a month. That's more than $3,200 a year just to maintain your lifestyle. And we haven't even added in the hit you are going to take on heating your home this winter and keeping the lights on. Longer term you'll also probably be looking at more expensive home insurance and property tax bills.

So please my friends, now is the time to really pay attention to your spending; you are going to need to scale back just so you can keep up with the rising costs of maintaining your life. If you carry a credit card balance, you are probably already feeling the pain of higher minimum payments. If you happen to have a FICO score above 720 you need to fight hard to get an interest rate below 10 percent. You should have plenty of leverage given your good score. If your card company won't budge, I want you to look for a balance transfer deal to a card that will have a lower rate than you currently pay once the teaser rate expires. But here's the real advice: you have got to do everything you can to get rid of the debt. The game has changed. You simply can't afford to keep a large balance. So get serious about staring to pay off what you owe. I know it will take some time, but the point is to start. Right now. This is your wake up call.

Same goes with your HELOC or your ARM mortgage. You have got to make it a priority to either refinance into a fixed rate mortgage if you are going to be keeping your property, or transfer your HELOC to a HEL. The best option for a HELOC would be to get it paid down ASAP.

If you are saving for the kid's college education and you are just making it financially speaking, stop right now. You read that right. You and your kids will be able to get student loans. I would rather you spend a year or two clearing up your debt issues, even if that means putting the college savings on hold. Same goes with your 401(k). Always invest enough to get the maximum company match. But don't put in more money than is needed to max out. That will boost your paycheck; and you are to use every penny of the extra money to pay down your debt. And do it as fast as possible. I want you to get back to your retirement investing ASAP. Right now though, getting your high-rate debt and adjustable rate debt under control is the best investment you can make.

**homesteadmamma** · 12-28-2005, 12:31 PM

This is some of the best stuff I've read in a long time. I agree wholeheartedly. NOW IS THE TIME TO STOP SPENDING AND GET YOUR FINANCES IN ORDER!!! I can't stress that enough.

Personally I think it's going to get tougher and tougher as we see more and more disasters, oil prices rising and countries like the States and Canada in debt up to their eyeballs. Something is going to have to give. Consumers have a hard enough time carrying debt, however countries are in the exact same boat.

When I hear what was spent on boxing day (day after Christmas) here in Canada alone, $1.8 billion (yes that is billion), it's mind boggling. http://www.newswire.ca/en/releases/a.../26/c3769.html

Something is going to give, it has too.

**SHOPGIRL** · 12-28-2005, 12:36 PM

C.J. I agree with you. People really have to decrease their spending. I think a lot of times consumers don't even know how much their debt is. I use to think that I was financially smart, but boy I sure wasn't. I thought I knew how much my debt was, and then when I started crumching the numbers, I was in shock! Just like spending a little here and there can lead people down to the credit card black hole, saving a little here and there can really make a difference.

**Pepper** · 12-28-2005, 12:39 PM

Very good article. I know it made me think!!

**dwallyfam** · 12-28-2005, 01:28 PM

The weird part is I heard that the average American will spend $1600-$2100 on Christmas presents. That doesn't include food, clothes or anything else, just presents. I have to say that I am so proud of myself. I didn't spend anywhere near that.

Also, we need to look at groceries. Since fuel will increase so won't the groceries. I know I have already seen hamburger at $3/lb. Luckily I buy a side of beef once a year and live off of that.

Kellie

**forestdale** · 12-28-2005, 02:56 PM

It's a good article. I hope it's read and thought about. The best way out of debt is to stop spending. Saving all those dollars from buying a fancy coffee, a dinner out with the family and getting your hair dyed will reduce your debt. Small things always add up!

Don't fall for the advertising, be smarter than that and stop spending.

This is from our state capital paper, The Courier Mail:

$50K spent every second
By Darren Behar
24dec05

"SHOPS are gearing up for a frantic last-minute spending spree by millions of Australians determined to have a Christmas to remember.

Yesterday retail traders predicted the final day of shopping would be "murder".

A staggering $2 billion will be plunged into tills today - the equivalent of more than $3 million a minute or more than $50,000 a second, the Australian Retailers Association said.

With December 24 falling on a Saturday, the carnage is expected to be twice as bad as other Christmas Eve trading days."

Australians are now spending 25% more than they earn. It's scary stuff. I'm sure most of them never step back and think about what they're doing.

**homesteadmamma** · 12-28-2005, 03:01 PM

Rhonda, you know what the sad part about this is. Someday, not to far in the future, they are going to hit retirement. They'll wonder why they can't make it on their retirement funds. No matter how good a pension fund they think they are going to have, it doesn't work that way. Ask most anyone trying to live on pensions - they'll tell you. It's crazy the amount of $$ spent on Christmas - boggles the mind.

My brother makes $125,000 per year, pays $1500 a month mortgage and will until after he dies, is up to his eyeballs in debt and is due to retire in 10 short years. He can't make it now and yet expects to live on pensions at 65. Not going to happen!!!!

**forestdale** · 12-28-2005, 03:40 PM

There needs to be a major shift in how we think about debt and what we see as "success".

I spoke to an old friend over Christmas. She rang up out of the blue. She's one year older than me and she told me that she needs to work until she's 74 to pay off all her debt! I asked her what would happen if she gets sick and can't work, she didn't have an answer. Her debt is from home renovations and a swimming pool that she installed after her divorce because she "deserved" it.

**SHOPGIRL** · 12-28-2005, 04:31 PM

My brother-in-law told me that he read that there has been a shift in saving. Apparently, people are finally starting to save a lot more. So, maybe there is a shift going on.

I was in college between 1988-1992 and I was bombarded with credit card offers. Of course, I accepted a few of them. Even though I worked, it was a huge temptation to buy things.

This Christmas I stuck to a budget, and I spent far less than what I've spent in the past. It helped that it was freezing here so I didn't want to leave my house. I also did a lot less online buying this year. There were times when I thought, oh I'd like to my so and so one more thing, but I didn't. I told my dh just to give me money towards the big freezer I purchased a couple months a go. That was my Christmas present for last year and this year.

This month I even put a hold on stockpiling. I want to make sure I use up what I have so it doesn't go to waste. Staying out of the stores really makes a huge difference.

I still think the key to frugality is being organized.

I'm always looking at ways to reduce my variable monthly expenses.

I think it's very easy for being to get so busy that they lose sight of where their money is really going. I for one am trying to "slow down" the pace a bit, and make time for refection. My big goal for 2006 is to live well below my means. The amount of money someone makes is irrelevant compared to what they spend.

**AmyBoz** · 12-28-2005, 04:38 PM

Originally posted by dwallyfam
The weird part is I heard that the average American will spend $1600-$2100 on Christmas presents.

ARE YOU KIDDING ME???????

**forestdale** · 12-28-2005, 04:40 PM

you're right, Shannon. Being organised is a major part of being thrify.

**dwallyfam** · 12-28-2005, 04:47 PM

Amy no I am not. I couldn't believe that figure myself. But with everyone having to give the latest and best electronic device for Christmas it is no wonder. Heck, the new XBOX 360 is running around $1200. That is for the basic XBOX and all of the cool things that you need to go with it.

Kellie